Updated January 10, 2019 13:02:55

Photo: Even a worker aged 55 would be better off by nearly $80,000 if every recommendation was adopted. (Unsplash: Fabian Blank)

Some Australians could be more than $500,000 richer in retirement under the biggest-ever proposed shake-up of the compulsory superannuation system.

A Productivity Commission report has found the current system is "harming millions of members" with underperforming funds, multiple accounts and excessive fees.

Super funds that underachieve over the long term would be booted from the industry under the Commonwealth agency's proposal.

New workers would also be steered towards the industry's top performers, with an independent panel creating a 'best in show' shortlist of 10 funds to choose from.

"I think there is merit to this idea that we can ensure that the better performing funds are taken up by more members," Treasurer Josh Frydenberg said.

"Because what the report did find is that right now it is a lottery for members as to the quality of the funds."

"Savings for retirement" is often considered synonymous with superannuation. This is wrong, argues The Grattan Institute.

Even a worker aged 55 would be better off by nearly $80,000 if every recommendation was adopted.

The major report also found:

• Multiple accounts and underperforming accounts cost Australians nearly $4 billion each year.
• About one-third of all accounts are unneeded because the person already has a primary super fund.
• Most of those with underperforming super accounts are in the retail sector that operates for-profit.

If all recommendations were implemented, the Productivity Commission said Australians entering the workforce today would have $533,000 extra in retirement savings by 2064.

"This report is all about putting the interest of members first and ensuring that they keep more money at retirement," Mr Frydenberg said.

Proposal receives mixed reception from industry, Labor

Shadow treasurer Chris Bowen said Labor remained concerned about the 'best in show' recommendation, suggesting it could impact competition.

"My concern is that a fund that might be well-performing at one particular time might not be well performing into future years," he said.

"There will always need to be … a model which assists people who aren't making proactive decisions about their own superannuation."

Industry Super Australia, which represents not-for-profit funds linked to unions and employers, described the top 10 idea as "a choice-first architecture that has been ground zero for consumer harm".

"Reform is clearly needed but the Productivity Commission misses the mark for the greatest gains," chief executive Bernie Dean said.

Finding the best super arrangement can be complicated. But it's an important part of you and your family's financial future — and taking steps to improve your retirement savings may be easier than you think.

But consumer group Choice supported the Productivity Commission's report, including the top 10 list.

"Anyone who's arguing against it, you've really got to look at what self-interest is involved in that argument, because from our perspective this is all good for consumers," Choice's Xavier O'Halloran said.

"It's really pro-consumer, it's friendly to consumers."

Choice also urged the Parliament to back changes previously proposed by the Government.

The Coalition proposed three main changes in May 2018:

• The Government would be able to consolidate some super accounts for consumers
• Fees and administrative charges would be capped
• For people under the age of 25, they would have to opt in to insurance cover instead of having it set up by default

The Federal Government tasked the commission with its investigation about three years ago.

Many of the recommendations today build upon similar ones released last year in the commission's interim report and Mr Frydenberg said the Government would consider all options.

"The Government will await the final report of the banking royal commission, which is examining the conduct of super funds and the regulators, before finalising its response to the Productivity Commission report into superannuation," Mr Frydenberg said.

Topics: superannuation, business-economics-and-finance, government-and-politics, australia

First posted January 10, 2019 09:44:01